BIG YEAR

Nigeria 2016 | DIPLOMACY | YEAR IN REVIEW

President Buhari's administration is signaling strong fiscal support and industry-approved leadership for the market in 2016, following a shaky first few months in which the markets saw low investor interest.

Nigeria stepped into a new era on March 28th, 2015 with the coming to power of Muhammadi Buhari, who pledged to jump-start the economy and inspire new trust in the government, which has previously been beset by allegations of corruption. Mr. Buhari became the first Nigerian to defeat a sitting President at the ballot box. He established a wide consensus as the country overtook South Africa as the continent's largest economy following a rebasing of GDP in 2014. At the same time, the country engaged in a bloody struggle with Boko Haram militants in the north of the country.

In economic terms, there's no two ways about it; in Nigeria, oil is king. It came as no surprise, then, when the Ministry of Finance downgraded its growth projection for 2015 to 5.5% from 6.4%, as it became apparent that oil prices were going nowhere quickly—except down. With oil representing 94% of export revenues, 70% of government income, and 11% of GDP, Buhari is leading the charge to attract more investment to the country in the hope of creating a more diverse future for the economy.

Elsewhere, and shortly before the presidential elections, the Central Bank of Nigeria (CBN) canceled its dollar auctions, targeting a new fixed exchange rate of 196.5 to the US dollar in order to combat the emerging market trend of falling rates. Indeed, under current CBN Governor Godwin Emefiele, the exchange rate has been virtually fixed since March at just shy of 200. This has led to calls from import-heavy sectors for a different approach, and all eyes are now on Buhari and his economic team, which was established in November 2015 and includes former investment banker Kemi Adeosun as finance minister, a telling appointment thanks to his disposition to the private sector. Another key change at the top includes Ibe Kachikwu, Nigeria's new Minister of Oil and acting Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), a firm that had become synonymous with the kind of corruption that Buhari has in his cross hairs.

The NNPC has since adopted 20 “fixes" to achieve zero tolerance for corruption, restructure its major subsidiaries, and enhance accountability in its operations across the board. The targeting of the energy sector for renewal is also telling of the wider target of creating a more viable business climate in a country that has become all too accustomed to crippling blackouts and costly inefficiency in the electricity sector. And a 2015 PwC report that Nigeria would continue growing even if the black stuff fell to a price as low as $35 per barrel is a key indication that many sectors, including agriculture, are growing independently of the hydrocarbon sector and, thus, could benefit greatly from improved infrastructure.

Moving forward, President Buhari's administrating is signaling strong fiscal support for the market in 2016 following a shaky first few months in which the markets reported low investor interest, a situation only encouraged by a five-month delay in the appointment of the new cabinet. With an initial budget outlay of up to NGN8 trillion, spending could exceed 2015 by NGN4.4 trillion. However, in Buhari's own words, he inherited coffers that were “virtually empty," leading to speculation of how the state will pay for expenses of this magnitude.

If rhetoric is anything to go on, the economic policies of the current administration could have a decisively more interventionist flavor. More specifically, the administration has singled out sectors such as agriculture, manufacturing, and services as key to addressing wide disparities in the country. Between 2009 and 2013, manufacturing increased from 2.5% to 9% of GDP. Likewise, finance, real estate, and business services rose from 6.7% to 15.2% of GDP.

Agriculture is a different story, with the sector's contribution to GDP having dropped to just over 20% as it fails to keep up with the better-capitalized services and manufacturing sectors. To get things moving again, Nigeria has implemented a ban on the import of several foods the government hopes can be produced at home. By focusing on value-chain improvement, technological adaptation, and job creation, it is hoped the agriculture sector can transform from being a tool for subsistence into a driver of growth, exports, and employment.
Should investors be keeping an eye on Buhari's progress, one key place to look is The World Bank's Doing Business Report. In 2015, the report ranked Nigeria 170 out of 189, up five places on the previous year. If Buhari's promises to clean up corruption and create a more business friendly environment come true, we can expect Nigeria to begin a more rapid climb up the proverbial ladder.

Moving forward, Nigeria, while Africa's largest economy, still has mountains that must be scaled if it is to become the sort of investment destination that Buhari hopes to create. The military has made important advances against militants in the north of the country, but a more decisive victory will go a long way in tempting investors. Only time will tell how Buhari's first term will be remembered, but with clear growth prospects beyond oil and the right political will, Nigeria has all the right tools.